Citigroup and BNP Paribas dropped in global regulators’ ranking of banks that pose the biggest threat to the financial system, and authorities recommended they face lower capital surcharges.
Citigroup fell one level in the ranking, meaning its extra capital requirement under international standards will be 2% of risk-weighted assets, according to the Financial Stability Board’s latest list published on Tuesday. BNP Paribas also slipped in the ranking of 30 banks, and faces a 1.5% surcharge. The shifts leave JPMorgan Chase & Co. as the world’s most systemically important bank, according to the FSB.
While the rankings reflect an international consensus about the relative risk of the world’s biggest lenders, supervisors in some jurisdictions have already put in place more stringent requirements than the FSB standards. U.S. rules in particular have already led the country’s biggest banks to estimate higher capital requirements than those suggested by the FSB.
“Most banks are way ahead of their requirements already,” Piers Brown, an analyst at Macquarie Group, said by telephone from London. “This is about giving them an incentive and rewarding good behavior. BNP has done a lot to reduce its jurisdictional complexity with the sale of non-core assets and units in some countries.”
The FSB standards apply to lenders deemed to present the biggest and most complex risks to the financial system in the aftermath of the 2008 crisis. Banks have spent years preparing for the additional capital requirements, which are reassessed annually. The FSB surcharges apply starting on Jan. 1, 2019.
Banks on the list are also required to meet the FSB’s total loss-absorbing capacity standard, or TLAC, part of global efforts to end the era of public bailouts by ensuring that investors, not taxpayers, pay for a struggling bank’s demise.
Credit Suisse Group AG fell by one “bucket” in the FSB’s new list, bringing a capital surcharge of 1 percent, down from 1.5% in the 2016 list. A spokeswoman for the bank declined to comment. The lender’s shares rose as much as 2%.
“We’ve expected that Credit Suisse would fall one notch,” said Kinner Lakhani, a Deutsche Bank AG analyst. “It doesn’t make a big difference for the bank because Swiss too-big-to-fail rules are reflecting a higher capital surcharge already.”
Bank of China and China Construction Bank rose in the ranking to face a 1.5 percent surcharge. Groupe BPCE fell out of this year’s FSB list, while Royal Bank of Canada was added.